News & Views

Sherrards exposes a top-four bank for abusing court process

Sherrards’ Litigation Solicitors Barney Laurence and Hannah Jones have successfully defended a client in a case against a well-known banking institution, where the banking giant was found to have abused the court process by using illegitimate means of exerting improper commercial pressure on Sherrards’ client to pay monies claimed to have been due.

There are essentially two ways you can go about recovering payment from a company: issue a Court claim, or seek to force the company into liquidation. Crucially, however, you can only do the latter if there is no dispute about whether the money is owed.

In a case brought by Sherrards on behalf of its client (referred to for present purposes as “Company A”) that came before the High Court on 22nd March 2017, one of the big four bank’s commercial finance arm was firmly punished for having aggressively threatened to issue a winding up petition against Company A in circumstances where it was clear that there was a substantial, bona fide dispute about the monies the bank was claiming from Company A.

It was alleged by the bank that Company A owed around £90k to a former contractor. The bank had taken an assignment of the contractor’s debts and so stepped into the contractor’s shoes and pressed Company A for payment in the summer of last year. Company A – a thriving commercial entity – instructed Sherrards, who entered into lengthy, detailed correspondence with the bank’s solicitors, in which Sherrards set out with full particularity the basis on which Company A disputed that it was liable for the monies it was being pursued for.

Despite that correspondence – some of which was completely ignored by its lawyers – the bank continued to adopt an unfortunately intransigent stance, insisting that there was no dispute despite the extensive correspondence that had been exchanged. The bank’s lawyers then gave Sherrards two business days’ notice of the bank’s intention to issue a winding up petition, forcing Company A to have to apply to the Court to protect its position.

In circumstances of the utmost urgency, Sherrards successfully applied to the High Court for an injunction, prohibiting the bank from issuing a petition. The Judge hearing the matter granted the injunction without hesitation at the first hearing.

The bank subsequently capitulated, but was not prepared to meet Company A’s substantial legal costs of having been forced into Court and so the matter came before the Court again 6 days later on 22 March 2017.

At the hearing, which was only concerned with arguments as to legal costs, the Judge acknowledged the abusive nature of the approach the bank had adopted and ordered it to pay Company’s A’s legal costs in the sum of £22,500 (equating to just shy of 93% of Company A’s overall costs).

In passing his judgment, the Judge commented:

“It seems to me that at the very latest by the 6 February 2017, if not before, it was manifest that the debts claimed in respect of [the contractor’s] work were disputed bone fide on substantial grounds. Sherrards had given an explanation and had produced a fair amount of supporting documentation … There is no obligation on a party disputing a debt to produce full disclosure of evidence that would be required in a part 7 claim. It was quite sufficient for [Company A] to set out in reasonable detail as to why the debt is disputed. They went further than that and produced evidence. In those circumstances, it seems the threat made by [the bank] to present a winding up petition on 13 March was a clear abuse of process and a high-risk strategy to exert pressure… The threat should never have been made. In my Judgment, there is no answer to [Company A’s] case that [the bank] should pay the costs to be assessed on the indemnity basis.”

This case serves as a stark reminder that threatening to issue a winding up petition when it is clear that a matter is disputed will be viewed by the Court as an abuse of process. As the bank found out to its cost, the Court will not tolerate a party – especially a bank – using illegitimate means of exerting improper commercial pressure on a company to pay up. The Court will readily grant an injunction to protect the company being pressed for payment, and punish the aggressor with a hefty costs order.

If you are a consumer and we have made a contract with you by electronic means you may be entitled
to use an EU online dispute resolution service to assist with any contractual dispute you may have
with us. That is at http://ec.europa.eu/odr.
Our email address
is law@sherrards.com.
The SRA Rules can be found by visiting the SRA website http://www.sra.org.uk.
VAT number: 382 462542